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From: Jared Hamilton
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Lindsey Auguste and Dennis Galbraith

Lindsey Auguste and Dennis Galbraith Investigative Reporters

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Risk vs. Reward of Withholding Information

Twenty years ago, dealership sales people held all the cards when it came to customers buying a car.  They knew all the details, all the pricing information, all the disclosures, incentives – everything.  About the only thing the customer knew was what color vehicle they wanted.  Today’s transactions tell a different story.  It’s not uncommon that customers come onto the lot knowing more about the car they want than the person selling it.  Hiding information about your inventory is not as useful or beneficial as it used to be, but each individual dealer needs to weigh the risks against the rewards of being transparent.

When we talk about transparent pricing to resistant dealers, the often-heard rebuttal ultimately returns to them losing gross margins on the sale if they share their pricing.  What some can’t seem to grasp is that they’re often going to lose the deal completely if they don’t share they’re pricing.  Of course, there are always exceptions to the rule, like subprime financing. However, the risk of withholding pricing information on a vehicle generally doesn’t outweigh the reward.

Contrary to popular belief, pricing your vehicles online doesn’t mean you have to have the lowest price.  When customers are shopping online and get a hundred search results, they aren’t going to shop 100 stores.   Most often they’re going to filter by their preference for the vehicle, including price, and preference for the store in order to narrow their search to 5 or so stores to shop.  All you need to do is make sure you’re priced relevant enough to make it to the list of 5.  Perhaps that’s priced as an average compared to the rest of the vehicles, or maybe it’s $200 more expensive than the cheapest options, but whatever works for your store, your vehicles have to be priced.  On some sites, showing no price online is worse than being the highest priced, because unpriced listings fall to the bottom of the search regardless of how the list is sorted. 

When you do price your vehicles, withholding information on pricing,  can also be a risky move in terms of compliancy.  Do you know your state’s regulations on advertising price for inventory?  Do you outline MSRP, incentives, and kickbacks, or just the bottom line?  Not being upfront about your pricing and even how you got there might put you in jeopardy of non-compliancy, and we’ve already seen how the FTC is handling that mess.  In this case, the risk of withholding information might be worth it now, but it’s only a matter of time before it’s not. 

Weighing the risks against the rewards of withholding information is necessary on a number of factors that are customer-facing, including doc fees and so forth.  Today’s shopper is very savvy and demanding of information, and that will play a huge part in your evaluation.  Constantly evaluate your process and tactics to make sure they are up-to-date and on par with customer expectations as well as state compliancy. 

 

You can learn more about online pricing and compliancy in our white paper, “New-Car Price Transparency and Regulation Study, Spring 2012,” available for FREE download at http://www.drivingsales.com/research/new-car-price-research-study

Ed Brooks
Great post guys! I's add to the statement, "On some sites, showing no price online is worse than being the highest priced, because unpriced listings fall to the bottom of the search regardless of how the list is sorted." - On many sites, when a customer inputs a price-range and you are un-priced, you DON'T SHOW UP AT ALL.
Lindsey Auguste
Excellent point, Ed, which has an even greater impact on the decision to withhold information, like price, like that. So many dealers are very concerned about losing gross margins when being transparent about price, and we understand those concerns. However, without being upfront about details like that, they're losing opportunities to interact with customers and make deals.
Ed Brooks
Lindsey, I would say to those dealers that are fearful of losing gross, you need to understand today's online competitive marketplace better and adopt some new processes. You are losing traffic and opportunities! You do NOT need to give up gross by advertising a competitive price IF you leverage the market's transparency to REDUCE NEGOTIATION. Many dealers that are advertising a more competitive price than you are, have updated their processes to use your high price against you and PROVE to the customer that their asking price is a fair one. It is possible to advertise a competitive price, drive more traffic, and still be highly profitable.
Lindsey Auguste
There's a lot of room for transparency and compliancy to be competitively advantageous for dealers, which is something Dennis and I will address in another upcoming post. You've hit the nail on the head.
Tyler Slade
The problem is still this guys: Their are lots of dealers that are making A LOT of money by staying "old school." I have visited quite a few of them and their PVR and store net profit are unreal! They have not adopted the full transparency and competitive online price philosophy and they are killing it!! It makes it hard for me to keep the faith!

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